Dear Eliza,
My 16 year old daughter has saved $1,200 from her summer camp counseling job. Can I open a Roth IRA for her? How do I get started?
Your teen did an awesome job getting that summer job. Kudos to her! The short answer to your question is Yes! A Roth IRA is an individual retirement account, and once your teen has earned income, you can open a custodial Roth IRA for them, where you the adult maintains control. I did this with my teens as soon as they started earning income. The best part; teens have time on their side, and compound interest is their best friend, so start TODAY!!!
To answer the second part of your question, you can open the custodial Roth IRA with brokerage firms such as Fidelity, Charles Schwab, or Vanguard. I especially like Fidelity because of their user friendly website and app.
Scenario
Here is an example scenario that illustrates the advantage a teen has when they start saving early. 8% return on $100 a month starting at age 25 is approximately $335,737.25 by age 65. If you start investing the same amount at age 15, the return will be about double the amount, $743,606.12.
One of the best things I did, was to listen to the audio version of a Simple Path to Wealth by JL. Collins. It is the best gift for you and your teen. Relaxing on a weekend evening? Read or listen to Simple Path to Wealth, and you will be happy you did.
Don’t forget to read about How to Avoid High Investment Fees.
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